IS GROUPON FOR LAWYERS FRAUGHT WITH ETHICAL DANGER? …illinoisjltp.com/journal/wp-content/uploads/2013/12/Russ.pdf · 2013-12-19 · If recent legal graduates and young attorneys

393

IS GROUPON FOR LAWYERS FRAUGHT

WITH ETHICAL DANGER?

WHY THE LEGAL COMMUNITY SHOULD

EMBRACE INNOVATIVE INTERNET-

MARKETING FOR LAWYERS

Aaron J. Russ

TABLE OF CONTENTS

I. Introduction .......................................................................................... 394 II. Background .......................................................................................... 397

A. How It Works ............................................................................... 398 B. Groupons and Lawyers ................................................................ 399 C. The Ethical Framework ............................................................... 400

III. Analysis................................................................................................ 400 A. State Advisory Opinions Concluding that Deal-of-the-Day

Websites Are Unethical for Lawyers ........................................... 402 1. Indiana ................................................................................... 402 2. Alabama ................................................................................. 405

B. State Advisory Opinions Permitting Attorney Marketing on

Deal-of-the-Day Websites ............................................................ 407 1. North Carolina ....................................................................... 407 2. South Carolina ....................................................................... 409 3. New York .............................................................................. 410 4. Nebraska ................................................................................ 412 5. Summarizing the Concerns of These States .......................... 413

IV. Recommendation ................................................................................. 415 A. Technology and the Regulation of Legal Advertising .................. 415 B. Accepting Economic Realities and Supporting the Movement

into Solo Practice and Smaller Firms ........................................... 417

J.D., University of Illinois College of Law, May 2013. Dual B.A., Economics and Political Science,

University of Michigan, May 2010. I would like to thank Chris Tinsley for his guidance through the note-

writing process as well as the entire JLTP editorial staff for its continued dedication and hard work. I would

like to thank Theresa Reiss for her willingness to listen to my ideas and provide constructive feedback.

Finally, I wish to thank my family for its love, support, and understanding throughout my entire law school

career.

394 JOURNAL OF LAW, TECHNOLOGY & POLICY [Vol. 2013

1. Lowering Start-Up Costs ....................................................... 418 2. Providing Lower Fees to Clients ........................................... 418 3. Accessing a New Supply of Clients ....................................... 419

C. Dispelling the Concerns of the Indiana and Alabama

Opinions: How to Ethically Advertise on Deal-of-the-Day

Websites ....................................................................................... 420 V. Conclusion ........................................................................................... 421

I. INTRODUCTION

The marketplace for legal services in America is undergoing a change

commensurate with the shift in information technology. Rapid advances in

Internet capabilities have widened the boundaries of our economy and

increased the speed with which information is downloaded, processed, and

retransmitted.1 Legal work product can now be compartmentalized,

segmented, and shipped overseas in order to take advantage of cheaper labor

costs.2 While big-law has been pressured by corporate clients to lower costs,

3

smaller-scale innovation has also developed in order to bring cost-savings to

the average legal consumer.4

Internet technology has been used to improve marketing, expand services,

streamline document review, and even reduce rent costs. Websites, such as

legalzoom.com, legalmatch.com, lawyers.com, and lawzam.com, have recently

been launched to leverage the advances of Internet technology into savings for

the individual legal consumer.5 Mirroring the shift away from the classic

brick-and-mortar retail stores, some law firms have even experimented with

abandoning their workspace entirely for a fully online firm.6 Thus, innovative

1. See WORLD INTELLECTUAL PROPERTY ORG., INTELLECTUAL PROPERTY ON THE INTERNET: A

SURVEY OF ISSUES ¶ 42 (2002), available at http://www.wipo.int/export/sites/www/copyright/en/ecommerce/

pdf/survey.pdf (noting that the process of digitization “allows the conversion of . . . materials into binary form,

which can be transmitted across the Internet, and then re-distributed, copied and stored in perfect digital

form”).

2. Id.

3. See Patrick G. Lee, Pricing Tactics Spook Lawyers, WALL ST. J. (Aug. 2, 2011),

http://online.wsj.com/article/SB10001424053111904292504576482243557793536.html (detailing how large

corporations have been using a reverse auction method to drive down the price of large-scale legal services).

4. CITIGROUP & HILDEBRANDT CONSULTING LLC, 2013 CLIENT ADVISORY 8 (2013) [hereinafter

HILDEBRANDT], available at http://online.wsj.com/public/resources/documents/CitiHildebrandt

2013ClientAdvisory.pdf (suggesting ways that firms can make small-scale structural changes to cut costs and

increase demand).

5. See, e.g., LAWYERS.COM, http://www.lawyers.com/ (last visited Sept. 16, 2013) (allowing clients to

search for attorneys online); LAWZAM, https://www.lawzam.com/ (last visited Sept. 16, 2013) (providing a

virtual portal for clients and attorneys to consult and communicate via computer webcams); LEGALMATCH,

http://www.legalmatch.com/ (last visited Sept. 16, 2013) (helping clients match with attorneys based on

location and service area); LEGALZOOM, http://www.legalzoom.com/ (last visited Sept. 16, 2013) (providing

simple legal tasks such as will drafting, business incorporation, and trademarks via an online transaction).

6. Carolyn Elefant, Virtual Law Firms Going Viral, LAW.COM LEGAL BLOG WATCH (June 26, 2009,

3:41 PM), http://legalblogwatch.typepad.com/legal_blog_watch/2009/06/virtual-firms-are-virtually-everwhere

.html (outlining recent advances in online virtual law firms); see also VIRTUAL L. PRAC.,

virtuallawpractice.org (last visited Sept. 16, 2013) (detailing one lawyer’s experience with promoting her own

virtual firm).

No. 2] INNOVATIVE INTERNET-MARKETING FOR LAWYERS 395

lawyers have been applying technology in creative ways to lower costs and

improve productivity.

The 2008 recession has hit all sectors of the economy—the legal

profession is no exception. Since 2008, the availability of legal jobs for young

attorneys has plummeted.7 The current employment outlook for new law

school graduates is the worst it has been since 1994.8 The financial crash in

2008 slashed the heavy transactional work for financial institutions that had

once driven the growth of larger law firms.9

A 2013 report of the legal market demonstrates that the rapid growth of

the “leveraged law firm model” in the 2000s was most likely an “aberration.”10

The absence of this model creates a void in the demand for the legal labor

market, resulting in an oversupply of young attorneys.11

The price pressure

attacking this leveraged model is coming from all angles. Clients are more

closely scrutinizing bills; contract attorneys, technology, and alternative legal

providers are competing with firms by delivering lower prices.12

The

compound aggregate growth rate of the legal market from 2008 to 2012 was a

meager 0.4%.13

The current excess capacity of law firms and the soft demand

for legal services supports the prediction that 2013 will be another

disappointing slow-growth year for the legal field as a whole.14

Although statistics indicate that legal hiring slowed in all major areas—

private, government, judicial, and public interest15

—there was an increase

from 2008 to 2009 in the number of new law graduates entering private

practice as solo practitioners.16

Opening one’s own law firm carries with it a

number of financial and reputational risks.17

Taking this leap requires start-up

capital, ingenuity, confidence, and clients.18

However, the data indicate that

when the traditional opportunities are scarce, new attorneys, to a larger degree,

7. See Press Release, NALP, Law School Grads Face Worst Job Market Yet—Less than Half Find

Jobs in Private Practice (June 7, 2012), available at http://www.nalp.org/uploads/PressReleases/

Classof2011ERSSSelectedFindingsPressRelease.pdf (indicating that for the class of 2009, only 65.4% of new

graduates with employment had full-time jobs that required bar passage).

8. See id. (“[T]he overall employment rate for new law graduates is, at 85.6%, the lowest it has been

since 1994 . . . .”).

9. James G. Leipold, The Changing Legal Employment Market for New Law School Graduates, B.

EXAMINER, Nov. 2010, at 6, 6.

10. HILDEBRANDT, supra note 4, at 1.

11. Id. at 3 (“To exacerbate the problem, associate ranks have shrunk in recent years, while the

percentage of income partners has climbed.”).

12. Id. at 2–3.

13. Id. at 1. Compare this to the 2004–2008 period, when the compound aggregate growth rate for the

legal field was a healthy 3.7%. Id.

14. Id. at 6.

15. Leipold, supra note 9, at 7–9.

16. Id. at 8. For the class of 2009, the number of solo practitioners reported was well over 1,000 and

represented more than 5% of law firm jobs reported, compared with 3.3% for the class of 2008. Id. A similar

data trend was discovered during the recession in the 1990s. Id.

17. See Steven T. Taylor, Going Solo: Rising to the Challenge, L. PRAC., Jan.–Feb. 2007, at 36,

available at http://www.americanbar.org/publications/law_practice_home/law_practice_archive/lpm_

magazine_articles_v33_is1_an1.html (profiling one attorney who spent $100,000 and left a lucrative position

as a partner in a large firm to start his own practice).

18. Id.


are willing to accept these risks and take the plunge into solo practice.19

If recent legal graduates and young attorneys are willing to seek out new

opportunities to serve new markets, they will need to be creative in seeking

such markets. One of the major challenges facing solo practitioners is finding

and retaining new clients.20

Due to the financial constraints, the limited

marketing that young solo practitioners can afford must be cost-effective. A

Pew Internet and American Life Survey estimated that by 2007 it was expected

that seven million Americans would be searching for legal services online.21

Lawyers can tap into this expanding market at relatively low costs.22

Internet

technology has the potential to help new start-up firms to break through this

marketing barrier and reach these consumers with the cost-effective tools that

are now available online. 23

Recently, the website Groupon.com (Groupon) has offered advertising

arrangements for attorneys. Some attorneys have tried to use the website in

order to attract new clients.24

Others remain skeptical of its costs and its

potential ethical violations.25

As of the writing of this Note, six states’ bar

associations have issued opinions on whether or not legal advertising on

Groupon or other similar “deal-of-the-day” websites is a violation of the ABA

Model Rules.26

While some of these opinions concluded that this form of legal

marketing can be Model Rule compliant, their conclusions are conditional and

do not provide clear guidance for attorneys.27

The other two opinions

condemn this practice, offering no safe-harbor for lawyers wishing to use these

websites.28

Ultimately, if lawyers are careful to implement a certain structure while

advertising on deal-of-the-day websites, they can avoid violating the principles

underlying the ABA Model Rules. Furthermore, the benefits to legal

consumers far outweigh the potential for Model Rule implications, which exist

in the shadows of every attorney-client relationship, online or face-to-face.

19. Leipold, supra note 9, at 8.

20. See, e.g., GISELA B. BRADLEY, MARKETING YOUR PRACTICE 4 (2001) (advising new solo

practitioners to have a plan to target an identified market that will demand the services offered by their new

firm).

21. Geri I. Dreiling, Choosing Up Sides, A.B.A. J., May 2007, at 28.

22. Id. (describing services that allow attorneys to be matched with clients through the Internet in

exchange for a nominal application fee and recurring subscription fees).

23. Id.

24. See, e.g., Debra Bruce, Did a Groupon Really Work for a Solo Lawyer?, SOLO PRAC. U. (Jan. 19,

2012), http://solopracticeuniversity.com/2012/01/19/did-a-groupon-really-work-for-a-solo-lawyer/ (explaining

one attorney’s experience with using a groupon to stimulate business).

25. Id. (commenting that many fellow attorneys had a negative reaction to this lawyer’s Groupon deal).

26. Ala. State Bar Office of Gen. Counsel, Ethics Op. 2012-01; Ind. State Bar Ass’n Legal Ethics

Comm., Op. 1 (2012); State of Neb. Lawyer’s Advisory Comm., Ethics Advisory Op. for Lawyers 12-

03 (2012); N.C. State Bar, Formal Op. 10 (2011); N.Y. State Bar Ass’n Comm. on Prof’l Ethics, Op.

897 (2011); S.C. Bar Ethics Advisory Comm., Ethics Advisory Op. 11-05 (2011).

27. State of Neb. Lawyer’s Advisory Comm., Ethics Advisory Op. for Lawyers 12-03 (2012); N.Y.

State Bar Ass’n Comm. on Prof’l Ethics, Op. 897 (2011); N.C. State Bar, Formal Op. 10 (2011); S.C. Bar

Ethics Advisory Comm., Ethics Advisory Op. 11-05 (2011).

28. Ala. State Bar Office of Gen. Counsel, Ethics Op. 2012–01 (describing this practice as “fraught

with ethical landmines”); Ind. State Bar Ass’n Legal Ethics Comm., Op. 1 (2012) (holding that advertising on

these websites is “fraught with peril”).


Jobs for new attorneys are scarce and young lawyers are driven, for better or

worse, into solo practice. Current markets exist that are underserved by the

legal industry.29

Low-cost Internet marketing could be the tool that removes

the friction between this abundant supply of young attorneys and the changing

demands of the industry’s clients.30

The ABA Model Rules should not

function as an impediment to the changing methods of legal advertising.

While several other online marketing tools have been the subject of

formal ethics scrutiny,31

this Note will focus its analysis on deal-of-the-day

style offers, popularized by Groupon. Part II of this Note will provide a

background of how deal-of-the-day websites work, the ethical framework

governing this advertising, and how lawyers can advertise with them. Part III

will survey the state bar association opinions that have directly commented on

this topic. Part IV will recommend how lawyers can avoid Model Rule

violations while using deal-of-the-day sites and why states barring this practice

should reconsider their positions.

II. BACKGROUND

Deal-of-the-day websites have enjoyed recent success and are expected to

continue their unprecedented growth.32

According to a BIA/Kelsey study,

revenues for these websites will continue to grow from $873 million in 2010 to

$3.9 billion in 2015.33

This dizzying rate of growth is attributed to reaching

new markets and increasing the number of users.34

The two major players in

this market are Groupon and LivingSocial; however, competition continues to

expand as over two hundred rival websites have launched.35

As of 2011, these

websites reached an estimated 102 million people in the United States.36

When shares of Groupon (GRPN) were offered to the public in November

of 2011, $700 million of new investment poured into the company.37

With this

influx of new capital, the untested three-year-old online website became the

largest IPO by a U.S. Internet company since Google.38

Although the stock’s

29. See Kendall Coffey, Underserved Middle Class Could Sustain Underemployed Law Graduates,

LAW.COM (Aug. 22, 2012) (noting that the middle class could provide a new market for young lawyers

offering a competitive price point).

30. Id. (explaining how advances in technology can facilitate new firms with lower hourly rates).

31. See Ethics FAQ, LEGALMATCH, http://www.legalmatch.com/attorneys/ethicsFAQs.html (last

visited Sept. 16, 2013) (listing the six states that have issued ethics opinions specifically regarding for-profit

legal matching websites).

32. Press Release, BIA/Kelsey, Consumer Spending on Deal-a-Day Offers Likely to Reach $3.9B in

U.S. by 2015, According to BIA/Kelsey (Mar. 3, 2011), available at http://www.biakelsey.com/Company/

Press-Releases/110303-Consumer-Spending-on-Deal-a-Day-Offers-Likely-to-Reach-$3.9B-in-U.S.-by-

2015.asp.

33. Id.

34. Id.

35. Id.

36. Id.

37. Alistair Barr & Clare Baldwin, Groupon’s IPO Biggest by U.S. Web Company Since Google,

REUTERS (Nov. 4, 2011, 12:55 PM), http://www.reuters.com/article/2011/11/04/us-groupon-

idUSTRE7A352020111104.

38. Id.


performance at the one-year anniversary was a disappointment,39

the company

is currently predicting revenues between $625 million and $675 million in the

fourth quarter of 2012.40

A. How It Works

Daily deal websites such as Groupon provide a way for customers to

enjoy the best businesses, products, and services in their city by leveraging the

framework of “collective buying.”41

Users sign up for free on Groupon.com

with their email address and zip code.42

They then receive daily deals, known

as “groupons,” which are essentially time-sensitive vouchers allowing the

purchaser to redeem anything from “pet grooming and pizzerias to puppeteers”

at a deep discount from the merchant.43

The merchant honors these discounts

similarly to a traditional coupon. According to its website, Groupon touts a

massive reach, currently over 38 million customers.44

Based on internal data,

Groupon has helped more than 250,000 businesses and generated over

$2 billion in sales for these companies.45

Groupon’s method of “collective buying,” means that a deal only

becomes valid once a certain number of consumers purchase the voucher. This

number is known as the “tipping point.”46

As long as enough of the groupons

are purchased for a given product or service within the allotted time, they may

be redeemed for the discounted goods or services.47

Once the groupon is

purchased, the fee is split between the merchant and Groupon.48

This deal is

mutually beneficial; Groupon provides its vast network of customers and

receives a fee for each groupon if they reach the tipping point, which also

generates enough new business for the merchant to make the arrangement

worthwhile.49

Merchants are also able to generate additional revenues from

Groupon users who purchase complementary goods at redemption, and the

39. Morgan Korn, Groupon Stock Plummets After Poor Q3 Earnings: Has It Hit a Wall?, YAHOO! FIN.

(Nov. 9, 2012, 11:03 AM), http://finance.yahoo.com/blogs/daily-ticker/groupon-stock-plummets-poor-q3-

earnings-hit-wall-160325425.html (“The stock has plunged 85% during its time on the market as investors

have grown increasingly worried about the vitality of the company’s business model.”).

40. Id.

41. GROUPON, www.groupon.com/about (last visited Sept. 17, 2013).

42. Id. (prompting new users to enter an email address in order to access local Groupon deals).

43. GROUPONWORKS, https://www.grouponworks.com (last visited Sept. 17, 2013).

44. Id.

45. Id.

46. Ish Bhanu, Group + Coupon = Groupon, Groupon.com: The Power of Collective Buying 3–4 (Dec.

2, 2010) (unpublished manuscript), available at http://www.econ.ucla.edu/sboard/teaching/tech/Groupon.pdf

(“Once [the tipping point] had been reached . . . the deal became active and those who had committed earlier

were charged . . . .”).

47. GROUPONWORKS, supra note 43.

48. Bhanu, supra note 46, at 4 (“Through heavy negotiating a Groupon representative would hammer

out a contract, which was typically just barely above marginal cost for the business in which the Groupon

company would take 30%-50% of money paid for the Groupon and the business would take the remainder.”).

The merchant’s portion of the Groupon fee is usually dispersed in three installments within sixty days of the

promotion. Id. at 4–5.

49. Id. at 2.


arrangement can create repeat clientele.50

Consumers can enjoy substantial

discounts on these services, typically between fifty and ninety percent.51

B. Groupons and Lawyers

Groupon discounts are offered in countless industries. The website caters

to a wide range of businesses: restaurants, beauty salons, ticket sales, services,

shopping, and travel, among several others.52

The website boasts that ninety-

one percent of its users already returned or plan to return to the merchant again

for repeat business.53

If a lawyer wishes to expand his business as a Groupon

merchant, he or she will make an arrangement with a member of the Groupon

sales team, providing a discount for a specified legal service. The common

examples are completed on a flat-fee arrangement and do not involve billable

hours.54

Since lawyers commonly charge per hour, deal-of-the-day arrangements

are only feasible for less complicated legal services that can be provided for a

set price. A commonly cited example is drafting a will. If an attorney can

estimate the amount of hours of work involved in drafting a will, he or she can

price the groupon accordingly. In one example, an attorney advertised his

services on Groupon to prepare a will for ninety-nine dollars.55

The rest of the

transaction is identical to any other groupon issued to consumers.56

If enough

consumers purchase the groupon, it goes “live” and all purchasers may enjoy

the discount.57

Groupon takes a cut of the purchase price, distributes the other

share to the attorney, and the purchasers decide when to redeem the services

from the attorney.58

Potentially, the attorney or any other merchant runs the risk of mispricing

the groupon. If the costs of the groupon do not cover the true costs, then the

merchant takes a loss on the arrangement.59

This is analogous to the

alternative billing structure that many corporate clients are demanding from

big law firms.60

The corporate client attempts to minimize the inefficiencies

50. Id. at 4.

51. Id.


53. Id.

54. See, e.g., Bruce, supra note 24 (in the context of a will); see also GROUPONWORKS, supra note 43

(showing examples of how Groupon for services work, generally charging for the job and not by the hour).

55. Bruce, supra note 24. Mr. Redler’s typical will package was $750. Id. He admits that this wasn’t

necessarily done to create a surge in profits, but rather he was a fan of Groupon.com and wanted to experiment

with one of his own. Id.


57. Bhanu, supra note 46, at 3–4.

58. Id.

59. See Bruce, supra note 24 (noting that in some cases, Mr. Redler’s Groupon clients actually wanted

something more complicated than a simple will, in which case he gave the clients a $750 credit—his base price

for preparing a simple will).

60. See generally Rachel M. Zahorsky, Facing the Alternative: How Does a Flat Fee System Generally

Work?, A.B.A. J., March 2012, at 41 (noting one example of Tyco International opening up its entire litigation

defense work for alternative fee arrangement bidding in 2004). Corporate clients push for these arrangements

because they can pay one flat fee for a law firm to handle all of a certain type of legal work. Id. The law firm

has to balance two competing goals: it must price the work competitively in order to win the bid, but it almost


inherent in paying for legal services by the hour, and this structure allows that

client to budget accordingly for its future legal work.61

However, firms want

to avoid pricing complex legal work on a flat-fee basis due to the uncertainty

of how many hours and attorneys it will require to complete the job.62

Although law firms have been able to amass large amounts of success based on

the billable hour, it is clear that these new alternative fee arrangements favor

the client, and the demand for them will continue to grow.63

It may be the case

that this billing model is spreading to smaller firms and solo practitioners.64

C. The Ethical Framework

Lawyers are governed by a set of ethical rules, which are adopted by the

highest court of each state after consultation with the state bar association.65

Almost every state has enacted one version of the ABA Model Rules.66

These

rules govern how lawyers can practice their trade within the state.67

The

highest court of each state is also in charge of the enforcement of these rules; it

will typically delegate the task to a separate disciplinary agency, run by

attorneys.68

Penalties for violating these rules can include public censure,

monetary fines, license suspension, and even disbarment.69

When the Model

Rules do not clearly resolve ethical issues facing lawyers, the state bar

associations will issue opinions which reflect their position on the issue.70

While these opinions are not legally binding, courts are increasingly relying on

these advisory opinions in their decisions.71

III. ANALYSIS

Advisory opinions attempt to apply the Model Rules to new situations,

but these rules are generally outdated, particularly in the realm of Internet

technology.72

The ABA recently realized that the Model Rules need to “keep

must charge enough money to cover its own costs and maintain profitability. Id. This can be challenging

considering that the amount of work involved in litigating any case is unpredictable. Id.

61. Id.

62. See id. (noting that traditional billing and tracking models are not good for predicting how a future

issue should be priced).

63. See HILDEBRANDT, supra note 4, at 7 (indicating that the trend toward alternative fee arrangements

is increasing).

64. See id. (discussing the successful small firm business models and strategies).

65. LISA G. LERMAN & PHILIP G. SCHRAG, ETHICAL PROBLEMS IN THE PRACTICE OF LAW 20 (2d ed.

2008).

66. See State Adoption of the ABA Model Rules of Professional Conduct, A.B.A.,

http://www.americanbar.org/groups/professional_responsibility/publications/ model_rules_of_professional_

conduct/alpha_list_state_adopting_model_rules.html (last visited Sept. 17, 2013) (indicating that every state

except for California has adopted the ABA Model Rules of Professional Conduct).

67. Preface to MODEL RULES OF PROF’L CONDUCT (2013).

68. LERMAN & SCHRAG, supra note 65, at 20.

69. Id. at 36.

70. Id. at 42.

71. Peter A. Joy, Making Ethics Opinions Meaningful: Toward More Effective Regulation of Lawyers’

Conduct, 15 GEO. J. LEG. ETHICS 313, 319 (2002).

72. AM. BAR ASS’N, COMMISSION ON ETHICS 20/20 INTRODUCTION AND OVERVIEW 1–2 (2012)


pace with social change and the evolution of law practice.”73

Specifically, the

ABA noted that “[t]echnology is changing the way that clients find lawyers.”74

Thus, the ABA seeks to provide more guidance to lawyers on the issue of

online legal marketing but realizes the benefits of technology.75

While

proposing to amend the rules with respect to online marketing, the ABA

recommends that three principles must undergird these modifications:

“preventing false and misleading advertising, protecting the public from the

undue influence of solicitations, and safeguarding the confidences of

prospective clients.”76

Newer forms of Internet marketing cannot become a free-for-all; the

Model Rules must continue to protect prospective clients. However, these

rules must be flexible enough to take advantage of the benefits of technology.

Adhering to the principles outlined by the ABA will ensure that these two

concerns are properly balanced.77

Several states have attempted to provide guidance on whether or not

lawyers’ advertising on deal-of-the-day websites is ethically appropriate.78

Currently, six state opinions tackle head-on the issue of attorney advertising on

deal-of-the-day websites such as Groupon.79

While these opinions come to

different conclusions, the separate analyses concern the same ABA Model

Rules: Rule 1.5 “Fees,” Rule 1.15 “Safe-keeping Property,” Rule 1.16

“Declining or Terminating Relationship,” Rule 2.1 “Advisor,” Rule 5.4

“Professional Independence of a Lawyer,” and Rule 7.1 “Communication

Concerning a Lawyer’s Services.”80

Indiana and Alabama have declared that using deal-of-the-day websites is

unethical.81

Conversely, North Carolina, South Carolina, New York, and

Nebraska have concluded that if certain criteria are met, deal-of-the-day

marketing arrangements may be ethically permissible.82

[hereinafter ABA INTRODUCTION AND OVERVIEW], available at http://www.americanbar.org/content/dam/aba/

administrative/ethics_2020/20120508_ethics_20_20_final_hod_introdution_and_overview_report.authcheckda

m.pdf (advocating for changes in the Model Rules, which reflect changes in Internet technology).

73. Id. at 1.

74. Id. at 5.

75. Id. at 4 (explaining that technology offers lower cost and convenience for clients).

76. Id. at 9.

77. Id. at 7.

78. See opinions cited supra note 26.



81. See Ind. State Bar Ass’n Legal Ethics Comm., Op. 1 (2012) (stating the use of group coupons for

Indiana attorneys “is likely not permitted”). See also Ala. State Bar Office of Gen. Counsel, Ethics Op. 2012-

01 (“The use of daily deal websites, such as Groupon, violates or potentially violates a number of rules of

professional conduct.”).





A. State Advisory Opinions Concluding that Deal-of-the-Day

Websites Are Unethical for Lawyers

1. Indiana

The Indiana Bar Association Legal Ethics Committee provides a dire

warning for lawyers using deal-of-the-day legal advertising, stating that it is

“fraught with peril and likely not permitted in its current form under the

Indiana Rules of Professional Conduct.”83

The Committee finds several issues

regarding the lawyer-client relationship, safekeeping of property, duties to

prospective clients, and fee-splitting.84

The Committee’s first issue is regarding the attorney-client relationship,

and the belief that the duty to determine whether or not to initiate that

relationship “rests with the lawyer.”85

Instead of the lawyer ultimately

determining whether or not to accept a client, the opinion claims that this

decision is made either by the deal-of-the-day website or the customer.86

Based on Indiana Rules of Professional Conduct 9.3(a), the duty to create an

attorney-client relationship cannot be delegated to anyone else.87

Further, assuming that the customer in the Groupon deal is the party that

ultimately creates the attorney-client relationship, the lawyer cannot comply

with Rule 2.1, which states that “[i]n representing a client, a lawyer shall

exercise independent professional judgment . . . .”88

According to the Indiana

Ethics Committee, “[t]his standard is difficult to meet if the decision to

represent the client is not the lawyer’s decision, but is the potential client’s

choice, made by the decision to purchase a coupon provided by a lawyer the

client may have never met.”89

Additionally, the fact that the consumer ultimately decides to initiate the

attorney-client relationship leads the Committee to conclude that the lawyer

may not properly run a conflicts-of-interest check.90

However, the Committee

only considers this hypothetically and presumes that the lawyer neglects to run

a conflicts check.91

The opinion makes no statements regarding whether

83. Ind. State Bar Ass’n Legal Ethics Comm., Op. 1 (2012). However, the opinion considers the future

possibility for this advertising, noting that “the [B]ar is advised to conduct rigorous research before entering

into such an advertising arrangement, and any lawyers contemplating such action would be well served to

employ competent, private counsel to guide the lawyer through the dangers inherent in such marketing,

including discussion of alternative courses of action that may comply with the Rules.” Id.

84. Id.

85. Id.

86. Id.

87. INDIANA RULES OF PROF’L CONDUCT R. 9.3(a) (2013) (“A lawyer may not delegate to a non-lawyer

assistant: (a) responsibility for establishing an attorney-client relationship . . . .”). This Rule is unique to the

Indiana Rules for Professional Responsibility and does not appear in the ABA Model Rules. See generally

MODEL CODE OF PROF’L CONDUCT (2013).

88. INDIANA RULES OF PROF’L CONDUCT R. 2.1 (2013).

89. Ind. State Bar Ass’n Legal Ethics Comm., Op. 1 (2012).

90. Id.

91. Id. Although the Committee does not say this is explicitly violated by the coupon purchase, the

court hypothetically considers that this could violate Rules 1.7 (conflicts checks) and 1.16 (terminating the

attorney-client relationship) if the lawyer does not properly run the conflicts check. If a lawyer neglects to


accepting a coupon from a client would absolutely foreclose the possibility of

complying with conflicts-check rules.92

The nature of this potential violation

is speculative, at best.

According to the Committee’s interpretation, the purchase of a deal-of-

the-day coupon for legal services initiates an attorney-client relationship.93

As

a result, the lawyer cannot exercise independent judgment and could fail to

pre-screen the prospective client for a conflicts of interest check.94

The Committee does not consider in its opinion the possibility that the

Groupon purchase does not initiate the attorney-client relationship.95

Hypothetically, if the lawyer or the website could structure the arrangement so

that the coupon is contingent upon a conflicts-of-interest check, then the

concerns of the Indiana Committee become moot.96

If the lawyer retains the

right to cancel the groupon and refunds the client’s money, then he or she can

exercise independent professional judgment, can determine whether or not to

initiate the attorney-client relationship, and can run a conflicts-of-interest

check. Considering that Groupon offers to process refunds for the merchant,

there is no reason that the transaction cannot be structured in this way.97

The second major concern raised by the Indiana Ethics Committee is the

issue with safekeeping client funds.98

The Committee cites Indiana Rule

1.15(c), which states that “[a] lawyer shall deposit into a client trust account

legal fees and expenses that have been paid in advance, to be withdrawn by the

lawyer only as fees are earned or expenses incurred.”99

The problem arises

because of the way Groupon and other deal-of-the-day websites charge

advertisers.100

When the consumer purchases a coupon on the website, a

portion of the purchase price is kept by the company and the other portion is

passed along to the attorney.101

The portion that the lawyer receives, and quite

comply with a Rule 1.7 conflicts check, this would be a Rule 1.7 violation on its own and not necessarily the

fault of the Groupon arrangement. Thus, a Rule 1.7 violation does not have a logically causal relationship with

the Groupon deal.

92. See id. (“[T]he lawyer is responsible to assure that there are no conflicts of interests between the

interests of the potential client and the interests of existing clients of the lawyer or law firm.”). The Committee

later concludes that if a conflict of interest is “not . . . resolved by the lawyer prior to the beginning of the

engagement, then the lawyer has the responsibility to decline or terminate the representation . . . .” Id.

93. Id.

94. Id.

95. But see id. (“[W]hen a company solicits clients and takes advance payments of legal fees, and then

remits only a portion of the fees to the lawyer, we find that this arrangement likely violates the Rules regarding

lawyer-client relationship formation and safekeeping a client’s property.”).

96. Id. (noting that the lawyer is the one to “determine that there are no personal interests of the lawyer

or members of the law firm that are affected prior to entering an attorney-client engagement with the potential

client . . . .”).

97. See Merchant Terms and Conditions, GROUPONWORKS, https://www.groupon-works.com/

merchant-terms-and-conditions (last visited Sept. 17, 2013) (permitting merchant to refund Groupon

purchase).


99. INDIANA RULES OF PROF’L CONDUCT R. 1.15(c) (2013). This is the exact rule found in the ABA

Model Rules 1.15(c).

100. See Bhanu, supra note 46, at 4 (“[T]he Groupon company would take 30%-50% of money paid for

the Groupon and the business would take the remainder.”).

101. Id.


possibly the portion kept by the company, will be considered an advance

payment of legal fees.102

As the opinion points out, this problem is exacerbated when the lawyer,

for any reason, determines that he cannot provide the services and must refund

the client’s advance payment pursuant to Rule 1.15(d).103

In this situation, the

Committee believes that the lawyer could not comply with Rule 1.15(d)

because the lawyer could only refund a portion of the client’s coupon price,

since the company has already extracted its fee.104

Additionally, since the fees

may not be immediately disbursed from the deal-of-the-day website to the

lawyer, the lawyer could presumably violate other rules because he would only

be able to pay back the client’s money from other clients’ trust accounts, an

obvious violation.105

The Committee assumes that the attorney must pay back the deficiency of

a refund from the other clients’ funds, but it does not consider that the attorney

could capitalize the account with his own funds to remain compliant.106

Although this puts the attorney’s own money at risk, this could represent a

necessary cost of doing business in order to take advantage of the arrangement.

Further, attorneys would be deterred from offering these deals unless they had

a reasonable basis for believing they could handle all the work.

The final issue raised by the Indiana Ethics Committee involves the costs

of the actual advertisement.107

Specifically, the Committee is concerned with

fee-splitting and the reasonable costs of advertising.108

Although fee-splitting

with a non-lawyer is generally allowed for advertising purposes,109

this only

applies to advertising that is appropriate under Rule 7.2.110

The opinion finds

that this is not ethical advertising under the Indiana Rules because: (1) it

102. Ind. State Bar Ass’n Legal Ethics Comm., Op. 1 (2012); INDIANA RULES OF PROF’L CONDUCT R.

1.15(c) (2013).

103. Ind. State Bar Ass’n Legal Ethics Comm., Op. 1 (2012); INDIANA RULES OF PROF’L CONDUCT R.

1.15(d) (2013) (“Upon receiving funds or other property in which the client or third person has an interest, a

lawyer shall promptly notify the client or third person. Except as stated in this rule or otherwise permitted by

law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or

other property that the client or third person is entitled to receive and, upon request by the client or third

person, shall promptly render a full accounting regarding such property.”).

104. Ind. State Bar Ass’n Legal Ethics Comm., Op. 1 (2012). The Committee then backtracks, stating

“[it] believes that this type of arrangement would not violate the Rules” in situations where the client directly

pays the lawyer and “the client paid a nominal fee for this coupon, in line with the reasonable costs of the

marketing.” Id.

105. See Ind. State Bar Ass’n Legal Ethics Comm., Op. 1 (2012) (“If the lawyer gave a refund to [the

prospective client with the coupon] the lawyer does not have [the client’s] money to return to her. If the

lawyer gave a refund to [the prospective client] out of his Trust Account, this would violate the Rules, because

he would be paying [the prospective client] with his other client’s funds.”). See generally INDIANA RULES OF

PROF’L CONDUCT R. 1.15(a), (c) (2013) (explaining that advanced payments for legal fees must be placed in a

separate trust account for that client and can only be withdrawn when these funds are earned).

106. Ind. State Bar Ass’n Legal Ethics Comm., Op. 1 (2012); see also infra Parts III.B.3–4 (discussing

abilities of attorney to issue refunds in different states).


108. Id.

109. Id. (“Advertising normally would not be a violation of fee sharing.”).

110. See INDIANA RULES OF PROF’L CONDUCT R. 7.2 cmt. 4 (2013) (allowing “a lawyer to pay for

advertising and communications permitted by this Rule”).


amounts to illegal channeling of professional legal work111

and (2) the costs of

the coupon are not reasonable.112

Considering that many of the online coupon

companies will charge up to fifty percent113

of the coupon price for their own

fees, the Committee does not find this to be a “reasonable” cost of

advertising.114

The Committee fails to determine what represents a reasonable

cost of advertising; therefore, any further attempt to comply with this opinion

would be uncertain at best.

In summary, Indiana finds three fundamental issues with the deal-of-the-

day coupon, which implicate various Ethical Rules. First, the purchaser

initiates the attorney-client relationship at the time the coupon is bought,

stripping the attorney of his independent judgment and preemptive conflict-

checking abilities.115

Second, the fact that the company will take some of the

purchase price completely precludes the lawyer from fully refunding the

client’s money in certain situations when the lawyer cannot ethically complete

the work.116

Third, since the company is retaining half of the purchase price

and channeling work to a specific attorney, this amounts to unreasonable

advertising costs and violates the fee-splitting rule.117

2. Alabama

Similar to Indiana, the Alabama Disciplinary Commission concludes that

advertising with deal-of-the-day websites “violates or potentially violates a

number of rules of professional conduct.”118

This decision rests primarily on

the nature of the company’s percentage fee of the coupon, the inability of the

lawyer to fully refund a client’s money if necessary, and a general concern

with the failure to effectively manage the clients he or she retains via this

advertising.119

Many of the concerns posited by the Indiana Ethics Committee are

reiterated in the Alabama opinion.120

The Commission first rejects the

argument that this is simply a form of advertising rather than fee-sharing

111. Ind. State Bar Ass’n Legal Ethics Comm., Op. 1 (2012); see INDIANA RULES OF PROFESSIONAL

CONDUCT R. 7.2 cmt. 4 (2013) (“Lawyers are not permitted to pay others for channeling professional work.”).

112. Ind. State Bar Ass’n Legal Ethics Comm., Op. 1 (2012); see also INDIANA RULES OF PROF’L

CONDUCT R. 7.2(b)(1) (2013) (permitting only “the reasonable costs of advertisements or communications”).

113. See Bhanu, supra note 46, at 4 (noting that the website usually takes between thirty percent and

fifty percent of the customer’s total payment).

114. Ind. State Bar Ass’n Legal Ethics Comm., Op. 1 (2012) (“[T]he business models employed by

many of the online coupon providers do not ask the attorney to pay ‘reasonable costs.’ Rather, some of the

Companies ask for half of the fees collected. . . . [S]uch an arrangement violates Rule 7.2(b)(1), because the

fees being kept by the Company are not tied to the ‘reasonable cost’ of the advertisements.”).

115. Id.

116. Id.

117. Id.

118. Ala. State Bar Office of Gen. Counsel, Ethics Op. 2012-01; accord Ind. State Bar Ass’n Legal

Ethics Comm., Op. 1 (2012) (holding that deal-of-the-day legal marketing is “fraught with peril and is likely

not permitted”).

119. Ala. State Bar Office of Gen. Counsel, Ethics Op. 2012-01.

120. Id.; accord Ind. State Bar Ass’n Legal Ethics Comm., Op. 1 (2012).


prohibited by Rule 5.4(a).121

The Commission reviews Alabama precedent set

forth in Alabama State Bar Ass’n v. R.W. Lynch Co., which held that lawyers

pooling resources to create a referral-based “Injury Helpline” was a

permissible form of advertising.122

The dispositive fact in the Lynch decision

was the flat-fee nature of the advertising according to the Alabama

Commission.123

Conversely, the Commission finds that the deal-of-the-day company’s

typical fifty percent splitting fee with the attorney is enough to depart from a

traditional flat-fee advertising arrangement and render the cost a fee-sharing

agreement rather than an advertising cost.124

Since deal-of-the-day coupon

advertising cannot be classified as an advertising expense, the Alabama

Commission concludes that engaging in this type of marketing would violate

Rule 5.4 as illegal fee-splitting with a non-attorney.125

The Commission’s opinion then draws a seemingly arbitrary line between

contingent-based and flat advertising fees. However, this is a distinction based

on form and not substance. According to the Alabama Commission’s

reasoning, an attorney could, hypothetically, pay well over half of what the

advertising produces, but it is deemed reasonable as long as it is a flat fee.126

It

may be the case that the advertising does not draw in any business; thus, the

cost of the arrangement is far greater than the benefit. A contingency-based

structure removes this up-front risk for the attorney; it ensures that the

advertising cost will only become a liability if, and only if, it produces an

increase in business.

Second, the Alabama Commission believes that the fee structure

established by deal-of-the-day websites also violates several professional

ethics rules because the attorney is unable to refund one hundred percent of the

client’s money, if necessary.127

If the lawyer had to terminate the attorney-

client relationship after the coupon was purchased, but prior to initiating the

work, the lawyer would only be able to refund the portion received after the

company’s deduction.128

Thus, the Alabama Commission concludes that the

attorney would retain half of the customer’s fee for not completing any work, a

121. Ala. State Bar Office of Gen. Counsel, Ethics Op. 2012-01; ALABAMA RULES OF PROF’L CONDUCT

5.4(a) (2013) (“A lawyer or a law firm shall not share legal fees with a nonlawyer . . . .”).

122. Ala. State Bar Office of Gen. Counsel, Ethics Op. 2012-01; see Alabama State Bar Ass’n v. R.W.

Lynch Co., 655 So. 2d 982, 984 (Ala. 1995) (“[T]he ‘Injury Helpline’ is a form of group advertising rather

than a lawyer referral service.”).

123. Ala. State Bar Office of Gen. Counsel, Ethics Op. 2012-01 (“In reaching its decision, the Court

noted that lawyers who participate in the helpline pay a flat-rate fee for the advertising, regardless of the

number of calls forwarded to them.” (citing Lynch, 655 So. 2d at 984 (Ala. 1995))).

124. Id.

125. Id.

126. See id. (relying solely on the flat-fee structure noted in Lynch for concluding that the Groupon fee is

unreasonable).

127. Id.; but see infra Part IV.C (proposing a plan for attorneys to provide a full refund to clients).

128. Ala. State Bar Office of Gen. Counsel, Ethics Op. 2012-01 (“[I]f the purchaser were to demand a

refund prior to any services being performed by the lawyer, the purchaser would be entitled to a complete

refund, regardless of the fact that half of the fees were claimed by Groupon. Failure to make a full refund

would be considered charging a clearly excessive fee in violation of Rule 1.5(a) [Fees] and/or failing to return

the client’s property as mandated by Rule 1.16(d) [Declining or Terminating Representation].”).


“clearly excessive fee in violation of Rule 1.5(a),” or would fail to return all

the client’s property “as mandated by Rule 1.16(d).”129

Again, there is no

consideration of the possibility that the lawyer simply may pay out-of-pocket

to reimburse these clients.130

Third, the Alabama Commission speculates that this marketing

arrangement could violate Rules 1.1 and 1.3, pertaining to competence and

diligence of the lawyer.131

It reaches this conclusion based on a concern that

this marketing arrangement could generate too much work for the lawyer, thus

rendering him unable to effectively manage all of the new clients.132

Since the

lawyer will likely receive a rapid increase in the amount of clients and will be

unable to ethically turn down these clients, he or she will not be able to

diligently and competently manage the increased workload.133

First, the Commission ignores the reality of Groupon.com. The lawyer

can structure the Groupon sale so that it is limited to a pre-determined amount

of sales.134

The lawyer can simply establish up-front the maximum amount of

vouchers that are sold, thus minimizing the risk that he cannot handle the

influx of new work. Second, if the lawyer does in fact capitalize the client’s

escrow account with his own funds, it would be irrational for attorneys to jump

head first into this arrangement without doing their due diligence. It is in the

attorney’s best interest to determine the exact amount of new work he can

handle, because if he is forced to refund a large number of clients’ vouchers,

the entire arrangement will result in a sizeable loss.

B. State Advisory Opinions Permitting Attorney Marketing on Deal-of-the-Day Websites

1. North Carolina

North Carolina’s State Bar Association released a 2011 Ethics Opinion

that raises potential concerns with the deal-of-the-day marketing arrangement,

but ultimately concludes that a lawyer may ethically engage in this business.135

129. Id.

130. See infra Part IV.C (explaining how an attorney can provide a full refund).

131. Ala. State Bar Office of Gen. Counsel, Ethics Op. 2012-01; ALABAMA RULES OF PROF’L CONDUCT

1.1, 1.3 (2013).

132. Ala. State Bar Office of Gen. Counsel, Ethics Op. 2012-01. The Commission finds that this would

jeopardize attorney competence rules “[b]ecause there is no meaningful consultation prior to the payment of

legal fees, the purchaser may be retaining a layer [sic] that does not possess the requisite skills or knowledge

necessary to completely represent the purchaser.” Id. Furthermore, the lawyer may not be able to diligently

represent clients if there is an influx of new work because “the lawyer may find that his caseload becomes

unmanageable.” Id.; see Bruce, supra note 24 (noting that in these arrangements there is a possibility that a

“sudden throng of new clients puts pressure on the ability to service existing full pay clients, and could harm

long term business relationships, if not handled well”).

133. Ala. State Bar Office of Gen. Counsel, Ethics Op. 2012-01.

134. See Groupon FAQs, GROUPONWORKS, https://www.grouponworks.com/merchant-resources/

FAQs (last visited Oct. 1, 2013) (explaining that Groupon provides “specialized calculators and a

knowledgeable staff” to help limit the amount of Groupon vouchers to be sold).

135. N.C. State Bar, Formal Op. 10 (2011).


The opinion addresses and dispels several concerns raised by this practice.136

The opinion states that a lawyer may advertise on these websites, but must

provide certain disclosures, place the client’s funds in a trust account, and

consider the client’s prospective at the time of purchase.137

The North Carolina opinion considers the issue of a Rule 5.4 fee-splitting

violation, but looks to the comments section to bolster its conclusion.138

The

opinion reasons that comment one demonstrates that the purpose of Rule 5.4 is

only to prevent interference with the independent judgment of the lawyer.139

The linchpin of the decision is that “there is no interaction between the website

company and the lawyer relative to the legal representation of purchasers at

any time after the fee is paid on-line other than the transfer of the proceeds of

the ‘daily deal’ to the lawyer.”140

The arrangement does not implicate the

independent professional judgment of the lawyer and, thus, does not frustrate

the intent of Rule 5.4 and cannot be considered an illegal fee-splitting

arrangement.141

The opinion instructs that certain disclosures must be provided prior to

purchasing the groupon in order to avoid a Rule 7.1 misleading advertising

violation.142

First, the attorney must have a stated price for the service such

that the discount is not “illusory.”143

Second, the voucher must explain that the

decision to hire a lawyer should be made after investigation into the lawyer’s

credentials, the relationship is contingent upon a conflicts check, and that

money will be refunded if a conflict of interest is ultimately discovered.144

Third, the client’s proceeds shall be considered advanced payment of legal fees

and placed in a trust account, either to be drawn upon as work is completed or

refunded if necessary.145

The opinion also binds the lawyer to several conditions if a refund is

136. Id.

137. Id.

138. See id. (“The purpose for the fee-splitting prohibition is not confounded by this arrangement.”).

139. Id. (“[T]he traditional limitations on sharing fees prevent interference in the independent

professional judgment of a lawyer by a nonlawyer.”). See also MODEL RULES OF PROF’L CONDUCT R. 5.4 cmt.

1 (2013) (“These limitations are to protect the lawyer’s professional independence of judgment. Where

someone other than the client pays the lawyer’s fee or salary, or recommends employment of the lawyer, that

arrangement does not modify the lawyer’s obligation to the client.”).


141. See id. (“The purpose for the fee-splitting prohibition is not confounded by this arrangement.”).

142. Id.; see MODEL RULES OF PROF’L CONDUCT R. 7.1 (2013) (“A lawyer shall not make a false or

misleading communication about the lawyer or the lawyer’s services.”).


144. Id. The advertisement must explain that the decision to hire a lawyer is an important one that should be considered carefully and made only after investigation into the lawyer’s credentials. In addition, the advertisement must state that a conflict of interest or a determination by the lawyer that the legal service being offered is not appropriate for a particular purchaser may prevent the lawyer from providing the service and, if so, the purchaser’s money will be refunded . . . .

Id. Until the lawyer is able to perform a conflicts of interest check, the “purchaser must be considered a prospective client entitled to the protections afforded to prospective clients under Rule 1.18.” Id.

145. Id. (“The payments received by the lawyer from the website company are advance payments of

legal fees that must be deposited in the lawyer’s trust account and may not be paid to the lawyer or transferred

to the law firm operating account until earned by the provision of legal services.”).


necessary.146

If the voucher “expires” then the lawyer must still provide the

work or refund the future advance payment.147

If the lawyer does not properly

price the coupon and it requires more work than anticipated to complete the

task, then the lawyer is still bound to the stated price.148

Arguably, the most

burdensome requirement is that if a refund is necessary, the attorney must

return the client’s money from the trust account and the money received by the

deal-of-the-day website.149

Thus, in the case of a fifty-fifty split with the

website company, the lawyer will accept a two-to-one risk that the lawyer can

ethically complete the purchaser’s transaction without having to terminate the

relationship.150

Provided that the attorney complies with these requirements

and is willing to internalize the risk of a conflict of interest, then the North

Carolina Ethics Committee concludes that this marketing arrangement is

acceptable under the Model Rules.151

2. South Carolina

The South Carolina Bar Ethics Opinion also grants approval of attorney

marketing on “daily deal” websites, but cautions against certain ethical

problems that may arise if the attorney does not properly plan for them.152

This opinion reflects the notion that the attorney is in the best position to

determine how and when to address ethical issues that may arise with this

advertising.153

This opinion, like North Carolina’s, finds that the marketing arrangement

does not violate Rule 5.4 with regard to fee-splitting and reaches this

conclusion with two alternative explanations.154

In the first, the Committee

146. Id.

147. Otherwise, the lawyer receives a windfall upon the expiration date and receives a fee for not

completing any work, which is an “inherently excessive” fee. Id. However, upon expiration the lawyer “may

charge his actual rate at the time the service is provided but must give the prospective client credit for the

advance payment on deposit in the trust account.” Id.

148. Id. (holding that the lawyer must complete all work despite unforeseen overages in time “without

additional charge”).

149. Id. (“[T]he lawyer must refund the prospective client’s entire advance payment, including the

amount retained by the website company, to make the prospective client whole.”).

150. In the case of a $250 coupon, the lawyer would split the fee with the website. Id. Assuming that

the website will not return its share of the fee in this instance, if the attorney discovers a conflict of interest and

must return the full $250 to make the client full, he will return the $125 in the client’s trust account and have

to dip into his own pocket to cover the website’s $125 take. See id. (“Similarly, if upon consulting with a

prospective client the lawyer determines that the prospective client does not need the legal service or that a

conflict of interest prohibits the representation, the lawyer must refund the prospective client’s entire advance

payment, including the amount retained by the website company, to make the prospective client whole.”).

151. Id.

152. S.C. Bar Ethics Advisory Comm., Ethics Advisory Op. 11-05 (2011) (cautioning lawyers to watch

out for logistical issues and maintain compliance with Rules 7.1 and 7.2).

153. This characterization of South Carolina’s approach is converse to Indiana and Alabama’s; in those

two states the opinions reflect the notion that since ethical issues may arise out of the use of daily deal website

marketing, the attorney must not be allowed to even venture down this path. Ala. State Bar Office of Gen.

Counsel, Ethics Op. 2012-01 (opining that the marketing arrangement is unethical because it “potentially

violates a number of rules of professional conduct”); Ind. State Bar Ass’n Legal Ethics Comm., Op. 1 (2012)

(concluding that this arrangement likely violates the ethical rules because it is “fraught with peril”).

154. S.C. Bar Ethics Advisory Comm., Ethics Advisory Op. 11-05 (2011) (“The use of services as


concludes that this arrangement constitutes an exception to Rule 5.4 since the

“fee” is only a reasonable cost of advertising.155

The nature of the payment

does not change the substance of the transaction.156

Alternatively, the Committee concludes that it is technically fee-splitting

with a non-lawyer, but it does not violate Rule 5.4 because it does not frustrate

the independent judgment of the attorney.157

Relying on comment one of Rule

5.4, the Committee concludes that the Rule is only violated when the fee-

splitting violates the independent judgment of the attorney.158

The Committee then proceeds to describe potential issues with this

marketing practice because of concerns with Rules 7.1 and 7.2, which relate to

advertising.159

Although the Committee reiterates that advertising

“effectiveness and taste . . . are matters of speculation and subjective

judgment,”160

the coupon must comply with Rule 7.1, and the communication

must not contain “any false, misleading, deceptive or unfair information about

the lawyer or her services.”161

Assuming that the lawyer also complies with

other standard practices, such as placing the advance fees in a client trust

account and performing a conflicts check,162

then the deal-of-the-day website

marketing arrangement is permissible according to the South Carolina Ethics

Advisory Committee.163

3. New York

The New York Ethics Committee believes that daily deal marketing

websites present four main issues: Whether the arrangement is an improper

referral payment, whether the fee may be excessive, whether the advertising

may be false or misleading, and whether there is a premature formation of the

described in the facts does not violate Rule 5.4(a) prohibiting the splitting of a fee with a non-lawyer.”).

155. Id. (“The fee charged for use of its service . . . constitutes the payment of ‘the reasonable cost of

advertisements or communications’ permitted under Rule 7.2(c)(1) . . . .”).

156. Id. (“The fact that the charge for this form of advertising service is deducted up front by the

company rather than invoiced and then paid from the lawyer’s operating account does not transform the

transaction from the payment of advertising costs into an improper fee split.”).

157. Id. (holding that the arrangement is not a prohibited fee-splitting arrangement with a non-lawyer

when the site does not exercise control over the services provided by the attorney); see also N.C. State

Bar, Formal Op. 10 (2011) (“The purpose for the fee-splitting prohibition is not confounded by this

arrangement.”).

158. S.C. Bar Ethics Advisory Comm., Ethics Advisory Op. 11-05 (2011); see also MODEL RULES OF

PROF’L CONDUCT R. 5.4 cmt. 1 (2013) (“These limitations are to protect the lawyer’s professional

independence of judgment. Where someone other than the client pays the lawyer’s fee or salary, or

recommends employment of the lawyer, that arrangement does not modify the lawyer’s obligation to the

client.”).

159. S.C. Bar Ethics Advisory Comm., Ethics Advisory Op. 11-05 (2011) (“[T]he lawyer is cautioned

that the use of ‘daily deal’ websites must be in compliance with Rules 7.1 and 7.2.”).

160. Id. (quoting MODEL RULES OF PROF’L CONDUCT R. 7.2 cmt. 3 (2013)).

161. Id.; MODEL RULES OF PROF’L CONDUCT R. 7.1 (2013).

162. S.C. Bar Ethics Advisory Comm., Ethics Advisory Op. 11-05 (2011) (“[T]he lawyer must ensure

that she is in compliance with Rule 1.15(c) which requires unearned fees to be deposited into a client trust

account . . . . [and] must address the logistical issue of how she will handle conflict of interest situations that

may arise under Rules 1.7 and 1.9.”).

163. S.C. Bar Ethics Advisory Comm., Ethics Advisory Op. 11-05 (2011).


attorney-client relationship.164

Provided that certain criteria are met, the New

York Committee concludes that a lawyer may market on these types of

websites.165

New York follows the approach of South Carolina, concluding that the

fees paid to the website are a reasonable form of advertising, which is

protected by Rule 7.2.166

This determination hinges upon the hands-off

approach of the website within these arrangements.167

The website is simply

acting as an advertising outlet to potential subscribers, not attempting to

channel purchasers to a particular attorney.168

Thus, according to the New

York Committee the arrangement is a reasonable cost of advertising.169

In order to avoid violating Rule 1.5 for an excessive fee, the New York

Committee explains that a lawyer must return a full refund if the lawyer or

client terminates the attorney-client relationship.170

However, if the voucher

expires or the purchaser never redeems it, the Committee believes that the

attorney may retain the advance payment as a form of a retainer.171

The premature formation of the attorney-client relationship has been a

troubling scenario in most of the advisory committee opinions regarding this

advertising arrangement.172

The New York Opinion follows the South

Carolina conclusion and believes that this problem can “be avoided with

proper logistical arrangements and disclosures.”173

Proper disclosures on the

coupon website must indicate that the attorney-client relationship is contingent

upon: a conflicts of interest check, a determination that the lawyer is competent

to handle the desired services, and that a full refund will be provided if these

invalidate the coupon.174

Therefore, assuming that the lawyer’s advertisement provides these

disclosures and is not false or misleading,175

then the attorney can manage this

marketing arrangement without violating ethical considerations according to

164. N.Y. State Bar Ass’n Comm. on Prof’l Ethics, Op. 897 (2011).

165. Id.

166. Id.; see also MODEL RULES OF PROF’L CONDUCT R. 7.2(a)(1) (2013) (“[A] lawyer may . . . pay the

reasonable costs of advertisements or communications . . . .”).

167. N.Y. State Bar Ass’n Comm. on Prof’l Ethics, Op. 897 (2011) (“The website has not taken any

action to refer a potential client to a particular lawyer – instead it has carried a particular lawyer’s advertising

message to interested consumers and has charged a fee for that service.”).

168. Id.

169. Id. However, the Committee does not discuss the amount of the fee arrangement and whether or

not that is a reasonable amount. Id. It qualifies this conclusion by explaining that it rests upon the assumption

“that it is a reasonable payment for this form of advertising . . . . Different arrangements between the lawyer

and the website could lead to the opposite conclusion . . . .” Id.

170. Id. (noting that in circumstances such as a discovered conflict of interest, the Committee requires

the lawyer “to give a full refund, subject to any quantum meruit claim for services rendered prior to the

termination of the representation”).

171. Id.

172. See, e.g., id. (describing the danger of creating a lawyer-client relationship prior to a conflict

check).

173. Id.

174. Id. (“This arrangement should be disclosed as part of the coupon offer on the website, along with

any other information needed to avoid making the offer misleading in any way.”).

175. Id. (“Like all lawyer advertising, the ‘daily deal’ advertisement must not be false, deceptive or

misleading, Rule 7.1(a)(1).”).


the New York Bar.

4. Nebraska

Nebraska’s Advisory Committee similarly concludes that the use of deal-

of-the-day website marketing is permissible for attorneys, provided that they

comply with five explicit conditions.176

These restrictions replicate some, or

all, of the conditions provided in the ethics committee opinions in New York,

North Carolina, and South Carolina.177

The committee states that in order for a

lawyer to engage in this marketing arrangement:

(1) the Groupon must clearly identify the service being offered and cannot be false, deceptive, or misleading;

(2) the Groupon must clearly disclose that no lawyer-client relationship is established until after a conflicts check has been performed;

(3) the Groupon must state that it is “advertising material;”

(4) payment received from Groupon must be placed in the attorney’s trust account until earned;

(5) if the services cannot be performed due to conflicts, or if the customer later decides not to utilize the service, the entire fee paid by the customer must be refunded.

178

In accordance with the other opinions, the Nebraska Committee dispels

the notion that Groupon advertising is an illegal sharing of fees with non-

lawyers.179

In its opinion, this rule is only implicated if the advertising

company exerts an undue influence on the attorney, and the Committee

determines that Groupon does not.180

The Committee views this arrangement

as an advertisement rather than a referral.181

As an advertisement, the Nebraska Committee concludes that the groupon

must comply with Rules 7.2 and 7.3.182

However, the committee does not

determine what a reasonable percentage fee for advertising is.183

Considering

that Groupon charges a fee of fifty percent, a court could easily find this

unreasonable.184

The Committee explicitly states that the burden is on the

attorney to assure that the fee is reasonable.185

This ultimately adds another

176. State of Neb. Lawyer’s Advisory Comm., Ethics Advisory Op. for Lawyers 12-03 (2012) (allowing

the use of groupons, but only if five “ethical safeguards [are] taken”).

177. Id.

178. Id.

179. Id.

180. Id.

181. Id.

182. Id. (holding that the advertisement must not be false or misleading and must also be reasonable).

183. Id.

184. Id. (refusing to make a recommendation as to the level of percentage change that would be

appropriate in any given case).

185. Id. Although the opinion allows the marketing arrangement, the industry standard fifty percent fee

could easily fall outside of the realm of “reasonable.” Id. Considering that the committee places the burden on

the attorney to ensure this reasonableness, but does not suggest what a reasonable percentage is, there is still

some uncertainty involved in this advertising. Id.


layer of uncertainty for Nebraska attorneys attempting to use deal-of-the-day

arrangements in the future.

In order to alleviate the problems with the advanced payment nature of

the groupon, Nebraska advises that the lawyer place the money from the

coupon into the client’s trust account until the work is completed.186

Further,

the committee places another burden on the attorney: if the client is entitled to

a refund of the fees, the attorney must cover the portion retained by the website

company.187

5. Summarizing the Concerns of These States

The four advisory opinions offered by the Ethics Committees of North

Carolina, South Carolina, Nebraska, and New York share the conclusion that

online deal-of-the-day marketing arrangements are ethically permissible

provided certain provisions are met.188

These opinions use similar approaches

to deem that this arrangement is a reasonable form of advertising,189

that the

client is entitled to a full refund of the purchase price,190

and that the attorney-

client relationship is contingent until certain determinations are made.191

Concluding that these arrangements can be performed ethically, these states

place the onus upon the attorneys to ensure that they comply with the rules if

ethical issues arise out of these deals.

These four opinions are able to simultaneously balance both the

underlying principles of the Model Rules and the need for attorneys to leverage

technology in growing their practice.192

These opinions require that the

186. Id.

187. Id. (“[T]he attorney is responsible for returning the full amount paid by the purchaser, including the

amount retained by Groupon.”). This approach was similarly advised in the New York ethics opinion and the

North Carolina ethics opinion. N.Y. State Bar Ass’n Comm. on Prof’l Ethics, Op. 897 (2011); N.C. State

Bar, Formal Op. 10 (2011).

188. State of Neb. Lawyer’s Advisory Comm., Ethics Advisory Op. for Lawyers 12-03 (2012)

(concluding that since the website does not exert undue influence on the attorney, there is no concern with fee-

splitting); N.Y. State Bar Ass’n Comm. on Prof’l Ethics, Op. 897 (2011) (holding that unless the

advertisements are misleading or deceptive, they constitute a reasonable cost of advertising since the website

does not exercise any independent control of the attorney-client relationship); N.C. State Bar, Formal Op.

10 (2011) (holding that this arrangement reflects the reasonable cost of advertising because the lawyer retains

his independent judgment); S.C. Bar Ethics Advisory Comm., Ethics Advisory Op. 11-05 (2011) (concluding

that the arrangement is a reasonable form of advertising and not impermissible fee splitting).

189. See supra note 188 and accompanying text.

190. State of Neb. Lawyer’s Advisory Comm., Ethics Advisory Op. for Lawyers 12-03 (2012) (“[T]he

entire fee paid by the customer must be refunded.”); N.Y. State Bar Ass’n Comm. on Prof’l Ethics, Op.

897 (2011) (concluding that the lawyer must give a full refund in certain situations where the attorney-client

relationship is terminated); N.C. State Bar, Formal Op. 10 (2011); S.C. Bar Ethics Advisory Comm., Ethics

Advisory Op. 11-05 (2011) (advising that certain considerations must be addressed by the attorney in order to

comply with aspects of Rule 1.5).

191. State of Neb. Lawyer’s Advisory Comm., Ethics Advisory Op. for Lawyers 12-03 (2012)

(“Groupon must clearly disclose that no lawyer-client relationship is established until after a conflicts check

has been performed.”); N.Y. State Bar Ass’n Comm. on Prof’l Ethics, Op. 897 (2011) (explaining what

elements need to be disclosed on the coupon in order for it to comply with the rules); N.C. State Bar, Formal

Op. 10 (2011) (“The lawyer has offered his services on condition that there is no conflict of interest . . . .”);

S.C. Bar Ethics Advisory Comm., Ethics Advisory Op. 11-05 (2011) (holding that certain disclosures should

be made in order to comply with the rules).

192. See ABA INTRODUCTION AND OVERVIEW, supra note 72, at 9 (stating that the principles are


voucher contain explicit disclosures, which are designed to prevent false and

misleading adverting. Further, the confidence of each prospective client will

be preserved because the attorney will be able to run a full conflict-of-interest

check before the attorney-client relationship can be initiated. Finally, the

public will not be subject to undue influence of solicitation because Groupon

and other deal-of-the-day websites require users to actively engage in the

process.193

Indiana and Alabama, on the other hand, stray too far in the other

direction and stifle the expansion of technology in legal services.

The pro-Groupon opinions are far from a free pass into the realm of deal-

of-the-day marketing, but they do give the power to the attorney to control his

or her own destiny with regard to this arrangement. Although these four

represent a more liberal approach versus the inflexible advisory opinions of

Indiana and Alabama, they do not resolve all uncertainty in the matter. Most

importantly, none of the four committees would provide any bright-line

recommendation regarding what percentage retained by Groupon would

constitute an unreasonable advertising fee.194

If an attorney follows all the

prescribed conditions set forth in these opinions, but the fee is later determined

to be unreasonable, then the entire transaction could be deemed an ethics

violation by a court.195

“preventing false and misleading advertising, protecting the public from the undue influence of solicitations,

and safeguarding the confidences of prospective clients . . . .”).

193. See supra Part II.A.

194. All four opinions do not venture a recommendation but instead place the onus on the attorney to

determine whether or not the fee is a reasonable advertising cost. See generally State of Neb. Lawyer’s

Advisory Comm., Ethics Advisory Op. for Lawyers 12-03 (2012); N.Y. State Bar Ass’n Comm. on Prof’l

Ethics, Op. 897 (2011); N.C. State Bar, Formal Op. 10 (2011); S.C. Bar Ethics Advisory Comm., Ethics

Advisory Op. 11-05 (2011).

195. The advertising exception to a Rule 5.4 fee-splitting violation is contingent upon the cost

constituting a reasonable advertising fee. See generally MODEL RULES OF PROF’L CONDUCT R. 5.4, 7.2 (2013).

Thus, if the cost is not reasonable, Rule 5.4 could invalidate the transaction as an illegal sharing of fees with a

non-lawyer. E.g., N.C. State Bar, Formal Op. 10 (2011) (explaining how groupon usage interacts with

unethical fee-splitting).


IV. RECOMMENDATION196

Although the majority of states’ ethics advisory committees have not

weighed in on deal-of-the-day marketing, a conservative stance on this issue

threatens to stifle the trend of online innovation in legal advertising. This is

especially true for solo practitioners and small firms that do not have the same

resources available to larger firms. The current regulatory scheme is unfit to

legitimately police current methods of Internet advertising. However, as the

four pro-Groupon opinions have demonstrated,197

it is possible to interpret

current ethics laws in such a way that allows the lawyer to responsibly use

these websites.

Moreover, these online marketing tools offer a relatively inexpensive way

of broadcasting a service to millions of potential consumers. They remove

significant barriers to entry for younger legal professionals attempting to enter

the market. These benefits can reduce a firm’s costs and pass these savings on

to consumers. The opportunities presented by Internet marketing overall are

unlimited. However, if practitioners fear ethical sanctions for exploiting these

new avenues, they will remain woefully underused.198

A. Technology and the Regulation of Legal Advertising

Traditionally, there have been two general justifications for regulating

legal advertising: (1) protecting clients from being misled by attorneys and (2)

protecting the image of the legal profession.199

With regard to image concerns,

the Supreme Court has explained that a State’s desire to uphold the image of

196. While this Note was undergoing final revisions, the ABA weighed in on the issue of Groupon-style

advertising for lawyers. ABA Comm. on Ethics & Prof’l Responsibility, Formal Op. 465 (2013). In the

opinion, the ABA recognizes the benefits of such advertising, but nevertheless adds to the uncertainty of its

ethical compliance. Id. The ABA claims that there are two types of deals: “coupon deals” and “prepaid

deals.” Id. It concludes that the so-called coupon deals “can meet the requirements of the Model Rules[]” if

structured in a certain way, but it “is less certain that prepaid deals can be structured to comply with all ethical

and professional obligations under the Model Rules.” Id. Unfortunately, the deal supported by the ABA—the

coupon deal—is not in fact a true groupon arrangement. The ABA’s example of this deal is a lawyer that

charges an up-front fee for a coupon that entitles the purchaser to redeem the lawyer’s services for a

discounted hourly rate. Id. The attorney simultaneously pays a marketer to advertise this coupon. Id. This is

not a groupon because it does not utilize collective purchasing, which requires a large number of up-front

purchasers committed to the entire service in order to justify the deep discounts offered by the firm. See supra

Part I.A. This coupon deal is simply a basic advertising arrangement, analogous to a firm paying a newspaper

to advertise a sale price for goods or services. The ABA’s so-called “prepaid deal” describes the true groupon

arrangement, which has myriad advantages described in this Part based on the collective purchasing theory.

Unfortunately, since the ABA remains uncertain as to whether or not these deals are Model Rules compliant,

the opinion does little to encourage this arrangement or provide a concrete resolution to the issue. ABA

Comm. on Ethics & Prof’l Responsibility, Formal Op. 465 (2013).




198. See Dreiling, supra note 21, at 29 (detailing the fight between Texas and the FTC regarding a state

ethics ruling which forbade lawyers from using the online market tool LegalMatch, a site designed to help

match lawyers with new clients).

199. Fred C. Zacharias, What Direction Should Legal Advertising Regulation Take?, PROF. L. SYMP.

ISSUES 45, 51–53 (2005).


attorneys cannot necessarily trump the right to free speech.200

Moreover, the

reality is that regulating legal advertising has little bearing on actually

improving the image of the profession.201

Curbing misleading advertising focuses on minimizing the danger that

clients will consult the wrong attorneys and ensures that lawyers do not gain an

unfair advantage over each other.202

However, relying on a traditional scheme

of regulation while advertising technology continues to evolve carries with it

the risk that these justifications will be misapplied.203

Traditional means of

regulation are inappropriate for Internet advertising because such advertising is

fundamentally different from the prior forms of media advertising that the

regulations were designed for.204

Thus, Internet advertising cannot be

appropriately regulated under the guise of the traditional regulatory scheme.205

If regulators and state bars continue to apply regulations designed for dated

methods of advertising or if they interpret current laws from a conservative

perspective, there is a danger that legal professionals will be discouraged from

using innovative Internet advertising.

The ABA has recognized that the ethics rules need to be modified in

order to encompass technological improvement.206

The ABA noted that

“[t]echnology is changing the way that clients find lawyers. The Internet

provides immediate access to information about lawyers through search

engines, websites, blogs, and ratings and rankings services.”207

Recently, the

ABA has taken steps to recognize the increasing role of the Internet in client

development.208

The ABA has recommended proposals that will allow lawyers

to leverage technology in order to provide clients with cost effective

services.209

The ABA recently announced that the Rules require updating in order to

specifically address the issues of online marketing services.210

The ABA

realizes that lawyers are increasingly using technology to reach out to

prospective clients and that this movement should not be stifled so long as the

200. Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 648 (1985).

201. See Zacharias, supra note 198, at 51–53 (arguing that it is unlikely that regulation of advertising

will cure negative stereotypes about lawyers, especially considering that negative press, television, literature,

and gimmicky advertising are all working against this objective).

202. Id. at 54.

203. Id. at 55.

204. See id. at 56 (referring to the “blitz effect,” which characterizes the quantity and ease of Internet

advertising, and Internet anonymity, which allows users to change or delete information without a trace).

205. See id. (explaining that the blitz effect and anonymity of Internet advertising requires a new method

of regulation). See generally ABA INTRODUCTION AND OVERVIEW, supra note 72 (advocating for changes in

the Model Rules reflecting the changes in Internet technology).

206. ABA INTRODUCTION AND OVERVIEW, supra note 72, at 1 (“Since [2002], communications and

commerce have become increasingly globalized and technology-based.”).

207. Id. at 5.

208. See generally ABA Comm. on Ethics 20/20, Resolution 105B (2012), available at

http://www.americanbar.org/content/dam/aba/administrative/ethics_2020/2012_hod_annual_meeting_105b.aut

hcheckdam.pdf (amending rules to include terms such as “Internet” and “email”).

209. ABA INTRODUCTION AND OVERVIEW, supra note 72, at 3.

210. Id. at 9.


principles underlying the Rules are preserved.211

Thus, clarifying language

must be added in order to provide guidance to lawyers using these

technological resources.212

B. Accepting Economic Realities and Supporting the Movement

into Solo Practice and Smaller Firms

After the 2008 recession, the overall economic downturn caused dips in

market growth across the board in the legal community.213

The transactional

work that was the bread-and-butter of the largest firms dried up.214

These

firms could no longer support pre-recession entry-level hiring rates.215

Simultaneously, smaller firms lost clientele, government jobs were lost to

budget cutbacks, and the trickledown effect continued.216

Admittedly perhaps more by necessity than choice, new law graduates are

entering the workforce as solo practitioners.217

Regardless of the motivation, it

appears that this statistic will continue to grow, as new job prospects are

bleak.218

Larger corporations have even used the economic realities to

pressure large firms into offering lower prices and alternative billing

methods.219

Considering that the legal labor market forces young attorneys

into solo practice, the Internet is an obvious way to grow a new practice at a

relatively inexpensive cost.

Internet advertising allows lawyers to access new potential clients that

have been underserved by traditional advertising methods. Large law firms

have already tapped into the benefit of online marketing tools to increase

productivity.220

While large law firms are able to leverage technology for

more complex objectives, smaller-scale practitioners require more basic

tools.221

Instead of deal-tracking programs, online conferencing, auction sites,

and proposal generation systems, small firms and solo practitioners need

simpler resources to market to potential clients. Unfortunately, the websites

developed for these purposes are consistently under the scrutiny of ethical

211. Id.

212. Id.

213. See HILDEBRANDT, supra note 4, at 2.

214. See Leipold, supra note 9, at 6.

215. Id.

216. Id. at 7.

217. Id. at 8.

218. Debra Cassens Weiss, A ‘Mild Uptick’ in 2012 Legal Hiring Doesn’t Keep Pace with U.S. Job

Growth, A.B.A. J. (Jan. 22, 2013, 8:15 AM), http://www.abajournal.com/news/article/a_mild_uptick_in_

legal_hiring_doesnt_keep_pace_with_us_job_growth (explaining that job growth for lawyers is slower than

the growth in overall employment).

219. See Patrick G. Lee, Pricing Tactics Spook Lawyers, WALL ST. J. (Aug. 2, 2011),

http://online.wsj.com/article/SB10001424053111904292504576482243557793536.html (detailing how large

corporations having been using a reverse auction method to drive down the price of large-scale legal services).

220. Sue Stock Allison & Leslie Meagley, Tracking Law Firm Marketing Technology, 34 L. PRAC. 35,

36–37 (2008) (outlining the various technologies used for purposes of client relationship management, deal

tracking/productivity, online conferencing, social networking/alumni networking, and proposal generation).

221. See id. at 37 (noting that, when examining product use by firm size, results showed that larger firms

more often use the newer and more expensive technologies while smaller firms often use more basic

technologies).


review.222

Smaller-scale firms and solo practitioners should have the ability to

access cutting-edge Internet marketing tools to grow new practices. Marketing

tools, such as deal-of-the-day websites, can benefit these firms and solo

practices by lowering start-up costs, providing more competitive fees to

clients, and accessing new markets.

1. Lowering Start-Up Costs

It should come as no surprise that larger law firms spend the most money

on Internet marketing.223

These firms understand the importance of marketing

to their clients using the newest technology.224

The costs of marketing are

high, yet marketing to consumers is an integral aspect of driving a new

practice.225

With Groupon’s developed consumer base, lawyers can access a

larger amount of prospective clients at a lower cost versus directly marketing

to a similar amount of people.226

Solo practitioners and young attorneys trying

to drive a new firm need to maximize every dollar spent; this is especially true

in marketing.

Lawyers do not pay up-front to use Groupon, they pay out of each sale

that is generated on the website.227

In the case of traditional advertising, such

as on a bus stop bench, billboard, or TV commercial, the lawyer may pay a

large up-front fee for advertising.228

This fee is not necessarily proportionate

to the advertisement’s success in creating new clients.229

Lawyers can make a

hefty up-front investment on one of these advertisements with no guarantee

that they will see a return on that investment.230

On the other hand, the cost of

deal-of-the-day arrangements is directly proportional to the amount of sales

that the coupon generates.231

Thus, this arrangement lowers up-front costs and

presents less initial risk to the attorney.232

2. Providing Lower Fees to Clients

The costs of legal services are rising at an alarming rate—twice as fast as

222. See supra Part III (discussing the pushback to deal-of-the-day deals); see also Dreiling, supra note

21, at 28–29 (explaining the ethical challenge to LegalMatch and similar sites).

223. Allison & Meagley, supra note 219, at 36.

224. See id. (noting that between one-third and nine-tenths of firms surveyed believe that their Internet

marketing is “highly effective”).

225. See id. (stating that budget constraints are the most common barrier preventing firms from

instituting new marketing technologies).

226. Uptal M. Dholakia & Gur Tsabar, A Startup’s Experience with Running a Groupon Promotion 13–

14 (May 1, 2011) (unpublished manuscript) (on file with Jones Graduate School of Business, Rice University),

available at http://ssrn.com/abstract=1828003 (detailing how a start-up company running a Groupon

promotion requires low up-front investment compared to advertising on the newspaper or TV, because the

only up-front cost is maintaining inventory to fill orders).

227. Id.

228. See id. (discussing the costs of various advertising options).

229. Id.

230. Id.

231. See Bruce, supra note 24 (explaining that companies such as Groupon make their money by taking

a portion of the proceeds from sales of coupons that are later redeemed at the business).

232. Dholakia & Tsabar, supra note 225.


inflation in the prior decade.233

This has caused commentators to suggest

several avenues for reform.234

While this may have to be addressed at the front

end, such as decreasing the cost of legal education, price can also be driven

down at the back end. Utilizing innovative online marketing services could be

one method to drive down the cost of legal services.

The foundation of Groupon is to use “collective purchasing” to provide

lower costs to a great number of purchasers.235

This method comports with the

economics of starting up a law firm. When the firm is young and has few

clients, the marginal cost of providing service to another client is decreasing

compared to the increase in revenue.236

In order to take advantage of

economies of scale, the new firm needs to increase the amount of service it

provides. Groupon’s “collective purchasing” arrangement emphasizes the

power of group purchasing and has the power to drive this rapid expansion of

new clients.237

3. Accessing a New Supply of Clients

According to the Pew Internet & American Life Project, an estimated four

million people used the Internet to search for legal services in 2006.238

This

number was expected to jump to seven million by 2007.239

With Internet

browsing capabilities on smart phones, televisions, tablets, and other devices,

this growth is only increasing.240

The ability to reach these potential clients is

integral to developing or sustaining a legal practice. Internet marketing tools,

such as Groupon, have the ability to provide access to these consumers and

bolster new or struggling firms.241

The Groupon website boasts that ninety-

one percent of its users already returned or plan to return to the merchant again

for repeat business.242

Creating loyal clientele is crucial for a law firm of any

233. America’s Lawyers: Guilty as Charged, ECONOMIST (Feb. 2, 2013), http://www.economist.com/

news/leaders/21571141-cheaper-legal-education-and-more-liberal-rules-would-benefit-americas-lawyersand-

their?fsrc=scn%2Ffb%2Fwl%2Fpe%2Fguiltyascharged.

234. See id. (discussing the possibilities of shortening the length of law school, allowing outside

investment in law firms, or making law degrees available through undergraduate studies).

235. Bhanu, supra note 46.

236. See Microeconomics—Marginal and Average Total Cost Curves, INVESTOPEDIA,

http://www.investopedia.com/exam-guide/cfa-level-1/microeconomics/marginal-average-total-cost-

curve.asp#axzz2NAQAKmKl (last visited, Oct. 1, 2013) (explaining that the marginal cost curve and the total

cost curve for a company will initially decrease as the fixed costs are spread over the course of a larger number

of units). The fixed costs of starting up a law firm include office space, furniture, research material, office

products, and other various business expenses. These costs will accrue regardless of whether or not the firm

has any revenue.

237. Bhanu, supra note 46, at 2.

238. Dreiling, supra note 21, at 28.

239. Id.

240. See generally FINDLAW, ADVANCED MARKETING STRATEGIES FOR LAW FIRMS 9 (2009) (white

paper), available at http://www.lawyermarketing.com/assets/Advanced-whitepaper.pdf (“The Internet has

changed the marketing landscape for attorneys and law firms need to re-evaluate how they connect with new

clients in the digital world.”).

241. See Our Solutions, GROUPONWORKS, https://www.grouponworks.com/merchant-solutions (last

visited Oct. 1, 2013) (stating that Groupon offers “the most effective local marketing available today”).

242. Why Groupon?, GROUPONWORKS, https://www.grouponworks.com/why-groupon (last visited

Oct. 1, 2013).


size.

One comprehensive study of a start-up company running a Groupon

promotion found that this technique most notably provided a large increase in

“exposure value” to the company.243

This led to repeat customers, who were

initially captured by the Groupon promotion but returned later to pay the full

price.244

Notably, the authors of this study concluded that the subject

company’s lack of reputation was key to achieving results with this

promotion.245

This predicts that a Groupon promotion could achieve

maximum potential for new attorneys, who are starting practices without any

reputational capital in the local economy. Young attorneys without an

established reputation can penetrate a new market by competing solely on price

rather than with reputation. Further, they can target a younger, underserved

demographic that is generally more price sensitive.246

C. Dispelling the Concerns of the Indiana and Alabama Opinions:

How to Ethically Advertise on Deal-of-the-Day Websites

Based on the economic realities, state disciplinary committees should

promote the use of deal-of-the-day legal advertising. This will encourage

lawyers to embrace innovative legal marketing in the future. The state ethics

bars and attorneys can employ a framework that ensures that these websites do

not run afoul of the spirit of the ethics rules.

The Alabama ethics opinion echoes the concerns of the Indiana

opinion.247

Their shared concerns can be compiled into three basic categories.

First, the attorney-client relationship initiates at the time of purchase; thus, the

lawyer cannot complete a conflicts check prior to representation, independent

judgment is limited, and competence and diligence may be implicated.248

Second, Groupon keeps half the money; thus, the lawyer cannot issue a full

refund if necessary, rendering the fee excessive and unlawfully retaining the

client’s money.249

Third, the fee charged by the website is unreasonable for

advertising, representing an unethical splitting of fees under Rule 5.4.250

243. Dholakia & Tsabar, supra note 225, at 14 (“[T]he Groupon promotion had a significant exposure

value, amounting to a lift of 140% of baseline sales over the duration of the promotion.”).

244. Id. at 15.

245. Id.

246. Jack Marshall, U.S. Groupon Users Skew Younger than LivingSocial’s, CLICKZ.COM (June 13,

2011), http://www.clickz.com/clickz/news/2078607/groupon-users-skew-livingsocials (noting that the

majority of Groupon users are aged 18–44).


Comm., Op. 1 (2012).


Comm., Op. 1 (2012).

249. Ala. State Bar Office of Gen. Counsel, Ethics Op. 2012-01 (holding that this arrangement can

violate Rule 1.5(a) as an excessive fee and Rule 1.16(d) by failing to issue a full refund); Ind. State Bar Ass’n

Legal Ethics Comm., Op. 1 (2012) (holding that this arrangement can violate Rule 1.16(d) by failing to issue a

full refund).

250. Ala. State Bar Office of Gen. Counsel, Ethics Op. 2012-01 (distinguishing the current marketing

plan from Alabama State Bar Ass’n v. R.W. Lynch Co. because of the fee structure and concluding that it is not

a reasonable advertising cost); Ind. State Bar Ass’n Legal Ethics Comm., Op. 1 (2012) (concluding that


These concerns can be preserved without blindly preventing lawyers from

attempting to use these sites, as the four pro-Groupon opinions suggest.251

The

following framework complies with the spirit of the ethics rules and ensures

that the client is afforded protection from misleading advertisements but allows

the attorney the autonomy to decide whether he or she is able to effectively use

these arrangements.

First, the groupon must state several disclosures. This is highly

compatible with the Groupon.com website, as groupons typically include a

section of “fine print” that is openly explained to the consumer.252

This

disclosure will explain that the groupon is subject to a conflicts-of-interest

check and that, in the event of a conflict, the attorney will refund the full

purchase price. It will further highlight that the purchaser is entitled to a full

refund if the voucher is not redeemed for any reason.

Second, the lawyer must escrow a sum of money that would represent the

client’s full purchase price charged by the website. This ensures that the client

can be refunded the entire purchase price in the event that the lawyer cannot

complete the work, there is a conflict of interest, or the client declines the

services. This escrow forces the lawyer to dip into his own pocket to cover the

risk that the groupon must be refunded. Therefore, lawyers will only use these

arrangements if they know that they can diligently and competently handle all

the potential work that the groupon will create.

The current regime of legal ethics must be amended in order for attorneys

to take full advantage of technology in legal advertising. This can be

accomplished in the following ways: (1) states should issue (or reissue)

advisory opinions that follow the framework of New York, North Carolina,

South Carolina, and Nebraska; (2) the ABA should continue to amend the

Model Rules to provide more latitude for the use of technology, specifically in

Internet marketing; and (3) more clarity needs to be provided with regard to

what objectively constitutes an unreasonable fee. Even if the ethics

committees determine that the current fifty-percent sharing agreement is

unreasonable, providing a bright-line percentage could encourage Groupon to

lower its fee for its legal users, or another website could use a deal-of-the-day

approach but arrange an ethically reasonable percentage fee.

V. CONCLUSION

The delivery of information to the legal consumer is changing along with

advances in technology. “Gone are the days when consumer clients pick up

splitting a fee in half with a deal-of-the-day website is not reasonable advertising).




252. See generally Rules for All Merchant Offers Purchased Through Groupon, GROUPON,

http://www.groupon.com/pages/universal-fine-print (last visited Oct. 1, 2013) (explaining the rules of each

groupon in a “fine print” section which is candidly displayed in normal-sized font).


the Yellow Pages to find a lawyer . . . .”253

While larger firms are able to

leverage new technology to cut costs for corporate clients, smaller firms and

solo practitioners face ethical pushback when trying to use innovative Internet

marketing, such as deal-of-the-day websites.254

Recent ethics advisory

opinions, such as those in Indiana and Alabama, exemplify how a close-

minded approach to innovation can stifle new opportunities for up-and-coming

attorneys.255

Using the Internet to market services in innovative ways will

attract new legal consumers, lower costs to these consumers, and help young

attorneys and solo practitioners grow their practice.

The current uncertainty surrounding the ethics of this advertising should

be reconsidered. Granting lawyers the ability to market on deal-of-the-day

websites in an ethical and structured way has the potential to pay dividends to

the legal field as a whole. Amid a recession and an uncertain legal

marketplace, these considerations are increasingly important to ensure the

viability and success of smaller firms and solo-practitioners.

253. Nicole Black & Carolyn Elefant, Social Media for Solos and Small Firms: What It Is and Why It

Matters, 83 N.Y. ST. B.A. J. 18, 19 (2011).

254. See supra Part IV.B.

255. See supra Part IV.C.

Documents

IS GROUPON FOR LAWYERS FRAUGHT WITH ETHICAL DANGER? …illinoisjltp.com/journal/wp-content/uploads/2013/12/Russ.pdf · 2013-12-19 · If recent legal graduates and young attorneys